SCMP: Investors hit by Lehman collapse get papers they can't understand

South China Morning Post (Hong Kong) - Tuesday, October 21, 2008
Author: Joyce Man

Investors who purchased complex derivatives linked to the financial health of now-bankrupt US investment bank Lehman Brothers finally got their hands on documents on the investments' underlying assets yesterday - but could not make head or tail of them.

DBS Bank handed a dozen investors stacks of files and papers centimetres thick, filled with legal and financial jargon. The investors had asked for documents showing what assets backed their investments, hoping to determine how much value they retained.

They pored over the documents for hours. Connie Kwan, who bought HK$1.3 million in derivatives known as retail structured notes in the past two years, said she felt no one could explain the papers.

"They say they will calculate the value based on the underlying assets, but we can't tell what the underlying assets are from these documents," she said.

DBS Bank (Hong Kong) managing director William Kwok Yu-lut explained how they could calculate the assets' value using lists in the documents, but he could not say what the asset breakdown was.

The retail structured notes that DBS distributed were linked to credit events - such as bankruptcies, loan defaults or being forced to repay loans early - of "baskets" of companies. If any company defaulted, investors would redeem their principal minus the reduction in value of that company. Some baskets included Lehman, which filed for the biggest bankruptcy in US history last month.

Investors estimate that DBS distributed more than 30 series of notes to hundreds of customers.

Meanwhile, Secretary for Justice Wong Yan-lung told a Legislative Council panel meeting yesterday that the government would like to see banks accused of mis-selling another type of derivative - minibonds - resolve disputes with investors through mediation.

He said the disputes might be long and expensive if the cases were handled by courts. The government had made contact with mediation agencies, and it would take only "weeks" for them to provide mediation services.